Ever since Bitcoin’s lows in December of 2018, we have been experiencing a slow and steady price recovery paired with an increase in demand. Paypal and Venmo are preparing to roll out support for buying and selling cryptocurrencies while Square reported an impressive 186% increase in Bitcoin purchases last quarter alone. Meanwhile, Bitcoin is back in a 5-figure price range.
Everything points towards a new crypto market boom and investors are getting excited about the potential profits. But what about new investors? How can a tech-illiterate individual buy Bitcoin and benefit from what seems to be the next big opportunity in the investment market?
In this article, we point out the things you need to keep in mind if you decide to utilize the opportunity in hopes of making bank.
Create an investment strategy
During the latest bull market, most people FOMOed into buying every cryptocurrency they could get their hands on. In between scammy ICOs and pyramid schemes, it was really hard to form a strategy for their investment journey. Sure, you want to make money, but how you make this money is equally important to the amount you are looking to make.
Start by answering the following questions:
- How much money am I ready to invest? Ideally, this should be money that you feel comfortable losing in case the market does not go in your favor;
- Which exchange offers the best rates for the amount I am looking to invest?
- Am I ready to give out my personal information?
- Do I want to invest all my money at once or do I prefer a more gradual purchase approach (like dollar-cost averaging)?
- How much do I know about the industry and/or the coin(s) I am looking to invest in and where can I find reliable sources to learn from?
The answers to these questions will come through personal research. Consider joining popular Facebook groups and forums where experienced investors share their advice and try to learn as much as possible through them.
Take profits at predetermined price points
As soon as the market starts to go “parabolic”, maintain a level-headed approach and cash out some of your profits at predetermined price points. These points can be determined by yourself, depending on your experience and confidence in the market.
For example, if your end goal is to see the popular cryptocurrency reach $75,000 per coin, consider selling some of your funds at $50,000, $75,000, and (hopefully) at $100,000. The average value of your funds will still be $75,000 but you will feel more certain about making a profit along the way.
Use logic instead of emotions
Emotional intelligence is what differentiates the minority of successful investors from the rest. Having the ability to remain unbothered by trends, rumors, and volatile wicks will allow you to see the bigger picture and understand if your decision is based on logic or simply a reaction to the situation.
This is the reason why many experienced investors point out the importance of research. If you are planning to invest your hard-earned money in an industry you barely understand, chances are that you will make many mistakes. You might be affected by influencers whose advice is fueled by affiliate commissions or large payouts. This is more commonly known as the “herd mentality” and is often the main reason for unsuccessful investing. As such, it might be wise to start investing with a small amount of money and spend your free time learning more about the digital asset.
Once you decide to join the cryptocurrency market, you might feel compelled to invest in just one cryptocurrency. Maybe it’s Bitcoin, or another project you feel strongly about. Whatever the case may be, it is important to diversify your funds to hedge against risk and protect your funds.
In the context of cryptocurrency, diversification refers to the practice of spreading your funds among multiple coins, instead of putting all your eggs in one basket. For example, you might invest in 10 popular cryptocurrencies that are expected to grow during this bull market. If one of them ends up performing poorly, it will only affect 10% of your portfolio. In contrast, if you invest all your funds in one project that ends up performing poorly, you will experience heavier losses.
Invest in projects with actual use cases
Coin listings have exploded in the past few years. In just 2 years, Coinbase went from offering a handful of coins to over 50 options. With so many options available, it is hard to understand which projects are expected to perform well in the future.
During the previous bull market, speculation and hype were the determining factors for the success of a cryptocurrency. In 2020, however, this is no longer true. Investors are now smarter and no longer affected by hope and empty promises. Due to that, the projects with the highest growth potential are the ones with actual utility. DeFi coins, exchange tokens, and popular dApp platforms like Ethereum are all good candidates with a lot of upside potential.
The cryptocurrency space is still volatile and unpredictable. What may look like a golden opportunity one day can turn into an unexpected loss the day after. The tips we discussed should help you create a better strategy for your upcoming investment journey. In short, here are the points we talked about:
- Set goals to understand what you want to achieve;
- Take profits gradually and maintain a realistic viewpoint;
- Practice emotional intelligence and make decisions based on logic;
- Don’t put all your money into one coin. Try to diversify your funds among popular projects;
- Pay special attention to tokens with real utility and research DeFi projects.
We hope that the contents of this post helped you see cryptocurrency investing for what it is — a very rewarding yet risky undertaking. Consider the pros and cons for yourself and try to make an educated decision.